Buying Groups 101

Most industries move through a predictable series of stages. They start in the product innovation stage, typically marked by creativity and the emergence of many competitors. Then they move into the process innovation stage. Here businesses begin focusing on finding smarter, more efficient ways to do what they do – including driving out cost and waste. This stage is often marked by:

• Bigger competitors trying to gain more control over market access
• Consolidation among smaller businesses trying to gain strength and efficiencies
• And then later, by smaller, weaker competitors eventually being forced to sell or exit

We’ve seen process innovation play out in many industries. Consider how Uber and Airbnb have changed their respective industries. Or what Brewhub is trying to do in brewing  – making it possible to build a brand without a brewery and with immediate economies of scale.

So what’s this have to do with a purchasing alliance? Joining a purchasing alliance is another form of process innovation – an option that doesn’t require you to merge, sell or change the way you run your business. And while membership can always be valuable, its most valuable in periods of industry change and increased competitive pressure. 

A great example comes from the hardware business. Fifty years ago almost every town had its own local hardware store. Then the “big box” stores emerged. They represented a business model designed in part to get volume discounts on purchases, and save even more money by centralizing operations like marketing, finance and purchasing. These drove many smaller, independent stores out of business with one notable exception; stores who had become members of either the Ace Hardware® or the True Value® purchasing alliances*. Being a member of one of these alliances lets smaller stores buy like much bigger ones. The groups also share all kinds of “best practice” information – advertising, merchandising, social media, HR and more – that makes every store smarter and more effective.

Will craft beer follow the same series of stages? Not necessarily. The craft beer movement is unique – where “local” can be a strength, not a weakness. But no matter what happens change will continue, and most industry insiders expect that some kind of shakeout is inevitable.

No matter what happens, an effective purchasing alliance represents an undeniable advantage to its members.

 * The Ace and True Value alliances ask members to operate under common brand names. But many effective purchasing alliances don’t. The members of the Topco purchasing alliance, for instance, include thousands of grocery stores from many big chains. Membership is invisible to the public.